Tuesday, February 19, 2019
Court of Appeal:
Creditor May Proceed With Action Claiming Debtor Seeks to Cheat Him Through Arrangement With Spouse, A Warners Bros. Executive, That Assets Accrued by Either After Marriage Will Be Separate Property
By a MetNews Staff Writer
The Court of Appeal for this district, in a case of first impression in California and apparently all community property jurisdictions, held Friday that a premarital agreement providing that assets acquired by either spouse during marriage will be separate property is subject to attack by a creditor of one of the parties as a fraudulent transfer.
Acting Presiding Justice Thomas Willhite of Div. Four wrote the opinion. It reverses a judgment of dismissal which followed an order by Los Angeles Superior Court Judge Susan Bryant-Deason sustaining a demurrer without leave to amend in an action brought by Robert Sturm against a judgment debtor, Todd Andrew Moyer, an independent film producer and licensed real estate salesman.
Bankruptcy Judge Thomas B. Donovan of the Central District of California determined in 2005 that Moyer’s $600,000 debt to Sturm was nondischargeable, and Sturm has been attempting to collect on it. Moyer has told Sturm he has no assets, never intends to work again, and will never pay on the judgment.
At a debtor examination in 2016, Sturm learned of Moyer’s marriage on Oct. 11, 2014 to Jessica Schell and that the parties had agreed to keep their assets separate. Schell is an executive vice president and general manager at Warner Bros. Home Entertainment.
Sturm sued Moyer and Schell under the Uniform Voidable Transactions Act, formerly known as the Uniform Fraudulent Transfer Act (“UFTA”).
(Although the act was renamed before Sturm brought his action, Willhite explained in a footnote that he would refer to the “UFTA” because it was in in effect when the parties signed their agreement.)
In sustaining a demurrer to the first amended complaint without leave to amend, Bryant-Deason wrote that under case law and statute, “defendants were entitled to alter the presumptions…that property acquired during the marriage is community property and that the community estate would be liable to satisfy any judgments against defendant Todd Moyer.”
Parties’ Respective Positions
The parties disagreed as to whether a “transfer” takes place where the parties are not yet married when they agree not to hold assets acquired after marriage as community property. Willhite wrote:
“Because the parties are not married when the agreement is entered into, the debtor-spouse has no present and existing interest in the community property represented by the non-debtor-spouse’s future earnings, income, and assets. Thus, it can be argued (as defendants do here) that no transfer takes place because, by the premarital agreement, the spouses altered the applicability of the community property laws such that neither spouse obtains any interest in community property upon marriage. On the other hand, it can be argued (as Sturm does here) that by law the premarital agreement does not become effective until marriage (Fam. Code, § 1613), at which point two things happen—each spouse obtains a present interest in community property by operation of law (Fam. Code, § 751) and then, by agreement, each spouse transfers to the other his or her community interest in the other’s earnings, income, or other property acquired during the marriage.”
In determining which view prevails, Willhite said that “the statutory language and the legislative history suggest, but do not conclusively establish, that the Legislature intended the UFTA to apply in this situation.” He went on to say that “[o]n the whole, …policy considerations favor the interpretation asserted by Sturm.”
Protecting Non-Debtor Spouse
Willhite pointed out that while the Legislature appears to have intended the UFTA to apply to pre-marital agreements, it has also provided a mechanism to shield assets of one spouse from premarital claims of a creditor of the other spouse, explaining:
“It might be argued that applying the UFTA to a premarital agreement in which the parties agree that each party’s earnings, income, and assets acquired during marriage would be that party’s separate property would discourage marriage in cases, such as the present one, in which one of the parties has significant debts while the other party has substantial income. But the Legislature already has provided protection for the couple in such a case, by enacting Family Code section 911.”
That section provides, in part:
“The earnings of a married person during marriage are not liable for a debt incurred by the person’s spouse before marriage. After the earnings of the married person are paid, they remain not liable so long as they are held in a deposit account in which the person’s spouse has no right of withdrawal and are uncommingled with other property in the community estate, except property insignificant in amount.”
Examining the particular agreement signed by Moyer and Schell, Willhite said:
“The policy considerations in favor of applicability of the UFTA are especially strong in this case, where the agreement provides that all earnings and income, and property acquired with those earnings and income, dating back to the date of marriage will become community property when certain premarital debts no longer are enforceable, and where the agreement allows the debtor-spouse joint access to the non-debtor-spouse’s earnings and income that are deposited in a joint account.”
He cautioned that the court is not holding that the agreement in question is necessarily subject to being set aside as entailing a fraudulent transfer, but only that it may be subject to the UFTA if fraud is established.
“That issue is a factual one, and is not before us in this appeal from a judgment of dismissal following the sustaining of a demurrer,” he said.
The case is Sturm v. Moyer, B284553.
Attorneys on appeal were Ian S. Landsberg for Sturm and Warren R. Shiell for Moyer and Schell.
Public records available on Westlaw show that Schell owns a townhouse in the hills above the Sunset Strip and Moyer lives there. Real estate websites show it is on the market, listed for $3.85 million.
Copyright 2019, Metropolitan News Company